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August 07: The cost of confusion

Staff Reporter 3 minute read

In a turbulent week the US sub-prime collapse triggered stock market jitters worldwide, sparking further negativity about non-bank lenders.

Adding fuel to the fire was the announcement that Bluestone would increase its rates by between 17 and 55 basis over and above the RBA’s August interest rate rise as funding costs climb in the wake of the US woes.

Commenting to The Australian, chief executive of Bluestone Alistair Jeffery warned that the buck would have to be passed to the customers of even Australia’s largest lenders – and that includes the big four banks.

But this opinion is not shared by all. Challenger is watching the market’s movements with a watchful eye but the overall mood of the lender remains positive.

“We operate in an extremely competitive environment but it is important to remember that the cost of funding is only one component in the margin equation,” a Challenger spokesperson told Mortgage Business.

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Challenger funds its mortgages using a term funding facility provided by AAA Residential Mortgage Backed Securities.

“Whilst global capital markets have been experiencing recent volatility, Challenger continues to maintain significant available funding capacity via pre-existing un-utilised committed facilities,” the spokesperson added.

 

Consumer confusion

For others the more pressing concern is the hysteria being stirred up by the media and the resulting confusion amongst borrowers.

Wizard CEO, Mark Bouris, is furious about the misinformation that is being spread by the mainstream media, where non-bank and non-conforming lenders are being tarred with the same brush.

Referring to the comments of some ‘industry experts’, Bouris said it was “ridiculous to lump all non-bank lenders into one category”.

The concerns of Bouris and other industry heads have prompted the MFAA to call a meeting, scheduled for Tuesday, to discuss what action can be taken to clarify the situation.

“Some media outlets have been advising consumers to refinance to the banks – some of whom are also exposed to wholesale markets – so it’s very important that this situation is addressed,” said Naylor.

The media over the past week has haphazardly interchanged the terms ‘non-conforming’ and ‘non-bank’ when describing the sector – at times referring to RAMS Home Loans and Bluestone as ‘competitors’.

Managing this issue at a consumer level will be difficult according to Naylor as borrowers aren’t interested where the funds come from – only the rates they have to pay.

“Consumers, and the media for that matter, seem to have forgotten that it was the non-bank sector that brought bank rates down by about four per cent. The non-bank sector plays an important role in keeping interest rates competitive for consumers and this is not an issue affecting all lenders,” said Naylor.

August 07: The cost of confusion
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